Matthew McLennan, who now oversees a global value investing team, began his life journey in Rabaul, Papua New Guinea, before growing up in Queensland, Australia. After earning a first-class honours degree in commerce from the University of Queensland, he started his career in 1991 at the Queensland Investment Corporation (QIC) in Brisbane, where he eventually took charge of international equity allocation. He moved to Goldman Sachs in Sydney in 1994, transitioned into asset management, and later co-founded Global Equity Partners in London in 2003 to run a concentrated global stock portfolio for offshore private wealth clients, having also served as the chief investment officer for equities in the firm's private client investment strategy group.

In September 2008, McLennan joined First Eagle Investment Management, taking over the global value team from legendary value investor Jean-Marie Eveillard. He now leads the team and manages multiple strategies, including global value, international value, and US value, with the firm overseeing over $160 billion in assets. His investment philosophy can be summarised as "scarcity value," where he first assesses whether a business holds a durable incumbent advantage that is difficult for others to replicate, and only then independently judges whether the price is reasonable. He views active management primarily as a risk mitigation exercise, aiming not to beat an index but to avoid permanent capital loss so investors can remain on the compounding journey. He has also been a driving force behind First Eagle's long-term gold holdings, viewing the metal as the physical embodiment of scarcity value. His methods earned him a place in William Green's book "Richer, Wiser, Happier," alongside figures like Charlie Munger and Howard Marks.

The Garden That Shaped an Investment Philosophy

Reflecting on his upbringing, McLennan credits his parents' move to New Guinea in the late 1960s purely for adventure, which instilled in him a global rather than parochial perspective. However, the more formative experience came after relocating to Australia, where they lived in a small town called Montville, a place of stunning beauty. Despite being only a ninety-minute drive from Brisbane, their home had no electricity, creating a completely different way of life surrounded by books and an early love for learning. His mother, an avid gardener, became his most profound teacher, as tending her garden seemed like a futile effort against constant problems of seasons and pests. Next door lived a farmer who mowed his lawn weekly, while a small house behind their land was left entirely to the whims of the forest. Three vastly different management styles existed on the same piece of land. Decades later, returning to visit his parents, McLennan found his mother's hand-tended garden breathtakingly beautiful, cultivated through selectivity and patience. The neighbour's heavily mowed lawn had left little lasting value, and the forest house had faced issues like fire due to a lack of natural firebreaks. For him, this became a powerful metaphor for investing itself.

His first foray into investing came early, a blessing he says, as it allowed him to make mistakes early on. In eleventh grade, a maths teacher who believed he could predict the Dow Jones with Elliott Wave theory decided it was a good idea for students to trade futures. The results were predictable, but the experience taught McLennan he needed a more analytical approach. This was also the 1980s era of corporate raiders using heavy leverage, which seemed like a magic formula for wealth creation, yet many of those companies eventually collapsed. He views this early exposure to flawed methods as a genuine gift, allowing him to learn from errors and steer towards fundamental analysis and valuation for a more prudent approach.

His first job at QIC, where he eventually oversaw international stocks, was a tremendous opportunity that connected with his global perspective. After completing his honours degree, his thesis supervisor, Don Hamson, who later pursued quantitative strategies in Australia, recruited him to QIC. There, he learned early on that by delegating some international equities to third-party managers globally, many ways exist to achieve the same result. He encountered managers across the entire spectrum—value, growth, different time horizons, methodologies, quantitative, and qualitative—which broadened his outlook. He realised that the choice of method is deeply personal; one must find the approach that feels most comfortable in one's own skin.

Moving to Goldman Sachs, first in Sydney and later New York and London, McLennan deepened his immersion in value investing. His first year was in the investment banking division, a gruelling but valuable learning experience. His move into asset management, where he eventually settled in London, is where he truly delved into the world of value investing. He had studied value theory and market pricing anomalies with Hamson at university, but at Goldman, an early mentor, Paul Farrell, who had worked for Lou Simpson at GEICO, instilled the Buffett approach early on. Another mentor, Mitch Cantor, from Bernstein, taught him about the importance of margin cycles and earnings normalisation. He was fortunate to encounter excellent value investing mentors early in his Goldman career.

The transition from an investment banking environment focused on making deals happen to the value-oriented approach of asset management was stark. McLennan views banking as a cross-sectional valuation exercise—assessing an asset's value relative to comparable companies today to close a transaction—while investment management is more of a time-series method, considering how a business will evolve and how its valuation characteristics change. He would not trade the investment banking experience for anything, as it provided analytical training and taught him how hard he could push himself. A Goldman partner once told him that if you want something done, give it to the busiest person. This stuck with him, as busy people get to the heart of the matter, a lesson beyond mere analytical skills.

Taking the Reins Amidst a Financial Crisis

McLennan joined First Eagle in 2008, perfectly coinciding with the financial crisis, a time that was both the best and most chaotic for a value-oriented firm. He explains that achieving goals as an investor involves finding the position where you are most comfortable. His Goldman experience exposed him to various markets, but First Eagle's opportunity was unique because all those decisions happened within a single fund. He had admired Jean-Marie Eveillard for decades, first learning of him in the 1990s, and shared some overlapping holdings. So, when the chance arose to take over the global value team, it appealed to him deeply. The timing was particularly distinctive; during his second week, Lehman Brothers filed for bankruptcy. Taking over a team during a crisis was a gift because the errors in underwriting tend to creep in during the late stages of a cycle when risk perception is low. In a crisis, everyone's goals are naturally aligned toward prudent underwriting, unlike in a bubbly environment.

Eveillard personally selected McLennan as his successor. In their conversations, McLennan learned that his willingness to "short social consensus" during the late 1990s and early 2000s reassured Eveillard. While managing small and mid-cap value strategies at Goldman, he and his colleagues avoided the dot-com mania, and those funds achieved positive absolute returns in subsequent weak markets. First Eagle's own history was similar, and this weighed heavily in Eveillard's judgement. McLennan also realised that in addition to the analytical toolbox, temperament is incredibly important. Eveillard was looking for a patient, humble investor, as without humility and respect for uncertainty, one wouldn't demand a margin of safety. Temperament likely received high weight in the selection.

When asked about watching other funds gain 40% or 50% while his returns lagged, McLennan says he focused on the arithmetic of his holdings. Even though missing out on gains was unfortunate, the free cash flow yields of his investments were significantly higher than those of overvalued companies, and they still grew at a steady pace. The comfort came from seeing a group of businesses that could deliver double-digit returns through arithmetic alone, requiring only patience. Meanwhile, stocks that had risen sharply had minimal free cash flow yields, needing to grow tenfold to become reasonable. As with life, happiness equals results divided by expectations, and expectations for some assets were too high. He also admits that such discipline can be a defect in other phases of the cycle, but it is crucial to know what feels comfortable. Many of those high-flying companies had aggressive management and accounting choices, making it against his DNA to invest.

Scarcity Value: Business First, Price Second

With a vast global investable universe, McLennan's first screen is to look for scarcity value. He looks at the business before assessing value, seeking companies with a durable incumbent advantage, which are rare. This could be control of physical assets, like a bridge across the Hudson River, which offers pricing power and longevity. The analogy extends to resources with high density and long reserve lives, or real estate in central business districts with higher rent premiums. These physical asset incumbents make up about 20% to 25% of their portfolio.

The main positions are in businesses with scarce intangible assets. Moats can be built on R&D, like a global leader in syringes and catheters with a 60% market share, or iconic brands with pricing power, such as the holding company that owns Cartier. Network density is another form, whether physical, like the densest convenience store network, or virtual, like social media platforms or software providers deeply embedded in customer processes. Ultimately, these are all forms of density advantage—R&D density, sales network density, user network density—which links to the idea of grade in resources or wealth density in property. After identifying such companies, they then assess price and the arithmetic path to a reasonable free cash flow yield while the business shares in nominal growth due to its locked-in market. This is how they arrive at scarcity value.

Regarding gold, McLennan explains its position as a potential hedge. Their holdings are diverse, like a garden with many corners and species, but as primarily business owners, they hold gold as a hedge against concerns about the financial system's architecture. Gold is the physical embodiment of scarcity value, but its paradox is that its usefulness comes from its uselessness. It is chemically inert, so it lacks the industrial uses of copper, oil, or iron ore, making it less correlated to economic cycles. This inertness also makes it a defensive, perpetual asset. Gold's density gives it low storage costs, and its inertness gives it low beta. After screening the periodic table, they found no better physical asset for a hedge, as gold is the collection of these traits. A leap made in Eveillard's era was that if they are willing to hold gold in a vault, they should also be willing to hold "gold in the ground" at a lower cost, so they are open to mining companies and royalty/streaming companies if there is a margin of safety in the resource's liquidation value relative to gold, and if management can efficiently extract it.

As a co-lead of the global value team and manager of multiple strategies, McLennan's responsibility division is rooted in his early belief in surrounding himself with excellent people. He hired many people early on, who grew from analysts to portfolio managers, building a deep bench. First Eagle's process is quite distributed, with many senior investors. The global fund is the mothership, investing in the US, international markets, and possibly bonds if they offer equity-like returns, plus gold as a hedge. Other funds are essentially slices of the global fund, like international or US value, with some smaller independent positions where mandates allow. The key is to see First Eagle as the mothership with a deep research team.

What's Priced In, and What Isn't

A significant holding is Prosus, a Dutch-listed e-commerce holding company. It's a prime example of virtual density. Prosus originated from Naspers, which bought over 40% of Tencent over twenty years ago, one of the greatest tech investments ever. Tencent, China's leading social media, gaming, and instant messaging platform, has been a fantastic business. Naspers later spun off its international holdings into Prosus about six years ago. The interest came from Chinese tech stocks being out of favour, leading to a dramatic de-rating for Tencent. At its lowest point, its free cash flow yield became attractive while management was simplifying operations, improving efficiency, and buying back shares. They bought the Dutch holding company because it traded at a 40% discount to the value of its Tencent stake and other assets, including Brazil's leading online food delivery, Eastern Europe's leading classifieds platform, and Indian online payment businesses. The chairman, Koos Bekker, who made the Tencent investment, started buying back holding company shares, exploiting the double discount. So, they saw a combination of a great business, a discounted price, and a management team creating value through capital allocation.

McLennan emphasises that you make money by identifying asymmetry between price and prospects. Identifying a good outlook is not enough; you must find prospects that aren't yet priced in. The best investments are often when a business is priced like a bond because it's out of favour, giving you the growth option for free. On passive investing, he notes both good and bad sides. Passive funds have democratised stock markets, allowing low-cost access to risk premia, but they also mean surrendering judgements on valuation, management behaviour, and cycle risk. You are exposed to cyclical bubbles in the market's most enthusiastic corners. He points to Japan as the largest MSCI weight in the late 1980s, while First Eagle held no Japanese stocks. Similarly, they had minimal tech exposure in the late 1990s, little in financials before 2007, and were unenthusiastic about BRICs a decade ago, only to find emerging markets attractive now. The industry's confusion is that risk management is often defined as minimising tracking error, but tracking error is a statistical construct that weights upside and downside equally. For them, avoiding permanent capital loss in real purchasing power is what matters, which sometimes requires looking very different from the passive index.

On quantitative and AI strategies, McLennan notes they have merged, with quants using AI to clean data or find alternative sources. These strategies are often high-frequency because they exploit a small edge repeatedly. Traditional quant strategies sort the market by cash flow yield, growth, or momentum, but stocks frequently enter and exit these brackets, making it a high-turnover method. In contrast, active management like Buffett's is low-frequency. The factors that matter differ greatly between the two. He also distinguishes between data-mining strategies, which are purely inductive, and deductive ones that build hypotheses about the world. Pure inductive methods risk finding patterns that are only temporary. He references "Where Are the Customers' Yachts?" a great book recommended by Buffett to Goldman partners, which satirises Wall Street and notes that every generation has a young man claiming to have found the secret to roulette, usually with an unhappy ending. He believes some of these strategies will pass the test of time, but many will fail as they are essentially sophisticated high-frequency data mining.

Compounding the Mind, Not Just Money

Being featured in William Green's book alongside investors like Munger and Marks, McLennan reflected on what he learned about himself. The book focused on managers who concentrate their portfolios on their best ideas, which is essentially a wealth maximisation strategy. While sharing prudent DNA, McLennan's approach differs. He has great respect for entropy and complexity, focusing on decline risk at the micro level, seeing every business as a melting ice cube that requires diversity in incumbent advantages. He and his team are more concerned with complexity and believe markets and the future are more uncertain than we think. A concentrated, wealth-maximising strategy expresses high conviction in how the future will unfold, but if you believe in inherent uncertainty and substitution risk, you become more diversified, prioritising capital loss prevention. Their goal is satisfactory, attractive real returns over time, with balanced performance and protection in extreme crises. With over two million end investors in their mutual funds, they must keep people on the compounding journey, which differs from managing your own money and taking on concentration risk.

After his interview for the book, McLennan was so impressed by the process that he built a relationship with Green. Now, the firm has a collaboration where Green brings interesting investors to speak with the team, offering insights into how others view the world. Green is at the centre of a network of thoughtful thinkers, serving as both a valuable source of insight and a good friend. McLennan acknowledges that investing can be lonely, but he consciously surrounds himself with thoughtful people, creating his own personal board of directors. While he must make the final judgements, it's wise to have respected people around him.

Instead of a formal decision journal, First Eagle conducts an annual offsite review. They select stocks with the greatest long-term contribution to performance and the most disappointing ones, looking for coherent patterns. Common patterns in the most disappointing stocks include facing greater substitution risk. While buying a company with a 2-3% market share in a competitive field is a known risk, the most humbling substitutions come from outside the studied system, where new industries are created that take away the entire profit pool. Another recurring theme is management hoarding capital without prudent reinvestment. A high earnings yield is fine, but if management does foolish things with free cash flow, it's a toxin that erodes value. This review process is their version of a decision journal and is the best way to learn.

On the difficulty of participating early in new industries like AI, McLennan notes that identifying the "new thing" is highly competitive, and valuations usually reflect perceived upside. You're essentially buying a lottery ticket with potentially negative expected returns. A market position often takes a generation to solidify. Using Buffett's analogy of cars, while you know a new industry will become huge, you don't know which company will capture the profits. Being in a growing market isn't enough; you must be confident a company can secure an embedded market share position, which is hard to judge early on. Additionally, high-growth companies require management capable of handling immense complexity, and such bandwidth is limited. With high prices and these judgement difficulties, the odds are unfavourable. He holds great respect for those who succeed in venture capital but cannot see himself doing it well, so he leaves it to them.

His advice to his younger self would be to focus less on any single year's outcome and more on nurturing his own human capital, dedicating himself to excellence, and learning as much as possible from those around him. Ultimately, if you are a compounding machine in terms of your mental models, your career will go well, even if you can't predict when. Moving away from annual cycles and immediate success obsessions to considering what kind of mental garden you are cultivating is the most crucial advice he could offer.